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Market Internals


I would like to start a thread on market internals, partly because I don't see much here about internals, and partly to get a sense of how other people are using internals, if at all.

Although I primarily trade ES using MP (no indicators), I watch order flow (contracts hitting the bid or lifting the offer) and internals to help me determine whether whether I want to be get long/short off a given MP level. My primary tools for trading besides MP: daily/Globex vol profile, composite(multi-day) MPs and composite vol profiles, MarketDelta Footprint and Time & Sales strips (both raw and filtered for size, and various internals.

The internals I watch:

$ADD
NYSE TICK (one of my favorites, I can't trade without it)
Cumulative NYSE TICK
VOLD
TRIN
VIX (not an internal per se, but I lump it in here anyways)
Major SPDR Sectors - XLV, XLB, XLE, XLI, XLF, XLU, XLK, XLP, XLY
SOX (Semis)
Dow Transports
New Highs/Lows
Plus a few others that I'd rather not talk about yet

I'll kick things off by saying that it is not uncommon for ES and internals to be divergent. And its also possible for internals to be divergent among themselves.

In my experience, when internals are diverging among themselves (not showing the same picture), it can be a clue that the day will be a rotational (bracketing/balancing/consolidating) day as opposed to a directional day (trend day). Attempting to identify as soon as possible whether the day is directional or rotational is one my main jobs as an ES daytrader.


Agree, disagree? Thoughts?


PopDoc
I use,watch,and mention internals sometimes in the forum intraday. They can add value in context if you know what your looking for. I prefer the BKX, but either will do. I think the banks are the key, but they're played a lot by the hand, if you know what I mean. If they're stable, I pay less attention than when looking for a break or breakout.
Today was a good example. Mojo stocks tanked, banks rocked steady(?).
The point is you want all the engines on the track pulling in the same direction. If not, slower acceleration in either direction or congestion as the different engines pull against each other.
Today, mojo stocks bottomed and eventually bounced.Banks held their ground. Correction into end of day. If banks had flipped a negative switch, it would have dropped more.
I focus more on the banks as they're the fuel for the market. Recent events tell us their importance.
If you get them all moving up or down together, it's powerful.
Originally posted by DavidS

I use,watch,and mention internals sometimes in the forum intraday. They can add value in context if you know what your looking for. I prefer the BKX, but either will do. I think the banks are the key, but they're played a lot by the hand, if you know what I mean. If they're stable, I pay less attention than when looking for a break or breakout.
Today was a good example. Mojo stocks tanked, banks rocked steady(?).
The point is you want all the engines on the track pulling in the same direction. If not, slower acceleration in either direction or congestion as the different engines pull against each other.
Today, mojo stocks bottomed and eventually bounced.Banks held their ground. Correction into end of day. If banks had flipped a negative switch, it would have dropped more.
I focus more on the banks as they're the fuel for the market. Recent events tell us their importance.
If you get them all moving up or down together, it's powerful.


Yes, watching the financials, specifically, Broker-Dealers and comparing them to the Money Center Banks is very helpful. I also watch XLF as part of my SPDR sector view.

PopDoc
I listen to a guy who watches the internals, so I don't
bother with watching them...for me they are important after
the reversal has taken place...but they don't help me see
a reversal....

One of my computers goes into another gear and when it does
I know things are heating up...lol
I'm hoping some of u internal folks will get some charts up with some good examples of when they work and when they don't....that would be a great reference.
Originally posted by BruceM

I'm hoping some of u internal folks will get some charts up with some good examples of when they work and when they don't....that would be a great reference.


How do I post a chart?

Thanks.
Originally posted by popdoc

How do I post a chart?


This should help:
http://www.mypivots.com/board/topic/10/1/how-to-upload-charts-and-images-to-the-forum
They're working everyday. Might be positive,negative,or neutral.

I posted all day in the forum.. No weakness until 3:30 when GS and GOOG pulled back. GS from 150 R level. GOOG from hod.

For the NDX, I watched the recent leaders and posted what I was looking for. Leadership rotates or changes in the leading sectors and leaders within those sectors. AAPL is the tech bomb right now. Remember when CSCO,INTC,MSFT,YHOO were the leaders in NDX.
I posted when AAPL broke above R level(about 3:00) for hod in indexes.Coincidence that hod happened right after it broke. I don't know. I do know I'd rather see AAPL green and moving up if I'm long.

The BKX broke above 46.5 and held 47 until it climbed to above 48.
50 is major R level.

I also posted the dollar was down, but I give it less value as it can vary as to whether it's accurate in a relationship to the index.

I use them as confirmation that what I'm seeing in the index is really what's happening within the index. Like when futures are ramped in O/N sessions. It's a perception thing, as most things are. It takes a bit of watching before one catches on to how some things matter, and some things really matter more than others at a given time, like when they're trying to break up or down against S/R levels or they're running.

Hope this helps.
got it David..thanks...I follow u in the daytrading threads....I guess I was hoping to see some of the basic things visually too...but I understand
Originally posted by DavidS

They're working everyday. Might be positive,negative,or neutral.

I posted all day in the forum.. No weakness until 3:30 when GS and GOOG pulled back. GS from 150 R level. GOOG from hod.

For the NDX, I watched the recent leaders and posted what I was looking for. Leadership rotates or changes in the leading sectors and leaders within those sectors. AAPL is the tech bomb right now. Remember when CSCO,INTC,MSFT,YHOO were the leaders in NDX.
I posted when AAPL broke above R level(about 3:00) for hod in indexes.Coincidence that hod happened right after it broke. I don't know. I do know I'd rather see AAPL green and moving up if I'm long.

The BKX broke above 46.5 and held 47 until it climbed to above 48.
50 is major R level.

I also posted the dollar was down, but I give it less value as it can vary as to whether it's accurate in a relationship to the index.

I use them as confirmation that what I'm seeing in the index is really what's happening within the index. Like when futures are ramped in O/N sessions. It's a perception thing, as most things are. It takes a bit of watching before one catches on to how some things matter, and some things really matter more than others at a given time, like when they're trying to break up or down against S/R levels or they're running.

Hope this helps.


DavidS. very nice description, and very similar to what I would of said.

I often get asked about internals and here is what I tell folks.

1. Many retail discretionary traders tend to be overly mechanistic in a search for a precise recipe, whether it be interpreting internals or determining if it’s a rotational or directional day . Interpreting internals and determining rotation vs trend (a trend is usually marked by the presence of the OTF – other time frame player) is very often a dynamic process. ...in fact I would say it is more art than science.

2. It was not a "quick process" for me to learn how to do this, it goes way beyond a simple checklist. Rarely does everything line up nice and cleanly. Learning to recognize rotation vs trend quickly enough to make any money (and more importantly to not fight a trend and lose money) was probably one of the of the hardest things for me to learn and is one of the hardest thing for most traders. And it still never works "cleanly" for me. Much more of an art than a science....very similar to tape reading.

3. By the time you have most of the things checked off for "trend" it might be too late and therefore difficult to get on it. I know that doesn't sound encouraging, but I'm also trying to be realistic and not lead anyone into thinking that by following a simple checklist you will figure out the market direction.

4. One of the biggest things that trips up most discretionary traders is that the data we are all looking at is usually ambiguous, signals are almost always mixed......"delta is rolling but ADD is up", or "VIX is down, ADD is flat and the dollar is down".... for instance. Today, though was a pretty clear from the get go, imo. ES gapped up on the open and only looked back a point or two, and most internals held their ground as well.Look at the repsonse in the internals immediately after the ISM report....TICK began trending higher, risk asset classes move up, everything was in synch....pullbacks in ES and most internals were all very shalllow....a classic "ramp" day,IMHO.

5. This last point bears repeating because it so important. As a discretionary trader I will tell you that 2+2 does not always equal 4, and many traders are looking for a formula......if needing a formula is what makes one feel comfortable and/or in control enough to trade then maybe that person should consider an automated system for trading. I don't anyone to mis-interpret what I'm saying here.......I'm not ragging on anyone, just being very realistic. For example, I've talked with a very, very successful automated systems trader and yet they are struggling to find their way as a discretionary trader. Some people thrive with structure, some without it. Personality (psychology) variables are at work, imo.

6. If I were to share my check list (and all my charts) of how I watch internals....I know what would happen....I would get tons of questions of why this happened or that happened.... why didn't ES do "what was expected" and such. To be honest, it all goes back to the issue of a discretionary trader needing to be comfortable with ambiguity and uncertinaity. I emphasize that a lot because it is what holds many traders back who may otherwise have good discipline. Discipline is really only part of the issue for our trading mind, once we are disciplined, the next obstacle that most of us face is the natural, and all-too-common search for precision and the need for perfection such as formulas and precise levels (e.g. one aspect of my process is to use price areas on certain sectors, not exact price points...and the salient sectors can change from day to day). it is rarely a situation of, "if X, then Y". I know someone who works with elite athletes as a mental coach and they would tell you that the need or the search for 'precision and perfection' can be one of your own worse enemies.

I speak from both personal and professional experience on this......I can tell you that you are not alone, the 'art" part of trading is probably the hardest part for most.

Having said all that,I will try to post a chart of the TICK later on……I may not get it today though….kind of busy preparing for a trading psychology webinar I’m presenting next week.
Is this thread gonna go anywhere...? I'd hate to think it was just posted to get a "plug" in for the webinar....perhaps I'm just always so skeptical!
Here is what it would look like on the TOS platform. I believe you can do this on a free paper trading account
Click image for original size
TOS Market Internals